Investing in turnkey property might seem a good idea for many. Of course, some benefits come with this type of investment, including simplicity and remote management. Typically, this type of engagement allows you to own properties without actively managing them. In this case, all you have to is find the right company to work with. But, how feasible is to find the ideal company? When interviewing different companies, you’ll want to keep an eye on these red flags that could signal a shady company.
1. Over Pricing
First, you need to identify the typical prices of turnkey properties in your desired location or area. One mistake that many investors make is failing to visit the area where they’re purchasing a property. Dishonest companies can take advantage of this and quote prices way above the market line.
When this happens, many investors are usually caught off guard when their returns are not reflective of their investment. Therefore, it’s important to do the research and find out everything about a company you want to partner up with, and know the market rate of a specific area even before you start shopping. Talk to neighbors to find out their view of their neighborhood.
2. Poor Renovations
Some companies will speed through house renovations and improvements just to sell off the properties quickly. An important caveat is to never send money upfront before the renovations are done. When the renovations are complete, hire an independent inspector to generate a report for the property condition.
Be sure to inspect all the important areas, including plumbing, flooring, HVAC, foundations, roofing, and electrical work. Some will also offer you properties that are straight out of foreclosure. In this case, you risk getting stuck with a hefty renovation and repair cost down the road. Also, get familiar with the local building codes and ensure the building adheres to them.
3. Cash Payment
If a company requires cash payment, just turn your back and leave. Cash to cash transfers, such as MoneyGram and the Western Union, are also not ideal for turnkey properties transactions. Also, you should investigate the company to determine whether they have been involved or charged with fraud in the past.
In this situation, you can use the Better Business Bureau to conduct a background check and weed out bad apples. A simple online search can give you sufficient information to gauge the viability of a turnkey company and how they handle payments. A general rule of thumb is that companies that offer turn key real estate properties have a solid and positive online footprint.
4. Rental Guarantees
If you have been in real estate industry for some time, you already understand that rental and vacancy guarantees never work. So, a turnkey company shouldn’t use guarantees to win your heart and trust. Some of them will give you an amount they expect the property to rent at. Instead, you need to research the market or location to understand its possible rent price.
In short, be wary of companies that give you figures that don’t make sense. They can be misrepresenting data or just trying to woo you. That means the deal isn’t transparent and you shouldn’t continue working with them. Either way, calculate the possible cash flow, ROI, and cash-on-cash returns.
Turnkey properties can be viable investments if you work with a reputable company that works to meet your needs. Be mindful of companies that bank on the idea that out-of-state buyers won’t come to assess the properties. Also, find out if the company has invested in its own portfolio of properties and what types of returns they’re getting. This is an ideal way to build trust with the right company from the onset.